Public Bill Committee

[Hugh Bayley in the Chair]

Hugh Bayley: Before we begin, I have a few preliminary announcements. Members may, if they wish, remove their jackets during Committee sittings, or, given the current weather, put on their overcoatsno hoodies though; I want to see whos who. Please would all Members ensure that mobile phones, pagers and so on are turned off or switched to silent mode during sittings. I remind the Committee that there are money and Ways and Means resolutions connected with the Bill, and they are here in the room. I also remind Members that adequate notice should be given of amendments. To be eligible for selection at a Tuesday sitting, amendments must be tabled by rise of the House the previous Thursday, and for a Thursday sitting, amendments must be tabled by the previous Monday. As a general rule, I and my fellow Chairman do not intend to call starred amendments.
Not everybody may be familiar with the process of taking oral evidence in Public Bill Committees, so it might help if I briefly explain how we will proceed. The Committee will first be asked to consider the programme motion on the amendment paper, for which debate is limited to half an hour. We will then proceed to a motion to report written evidence, and then to a motion to permit the Committee to deliberate in private in advance of the oral evidence sessions, which I hope we can take formally. Assuming that the second of those motions has been agreed to, the Committee will then move into private session and, once it has deliberated, the witnesses and members of the public will be invited back into the room and our oral evidence session will commence, at around 11 am. If the Committee agrees to the programme motion, it will hear oral evidence today and Thursday, and revert to the more familiar proceedings of clause-by-clause scrutiny next week. I call the Minister to move the programme motion standing in her name.

Joan Ruddock: I beg to move,
That
(1) the Committee shall (in addition to its first meeting at 10.30 am on Tuesday 5 January) meet
 (a) at 4.00 pm on Tuesday 5 January;
 (b) at 9.00 am and 1.00 pm on Thursday 7 January;
 (c) at 10.30 am and 4.00 pm on Tuesday 12 January;
 (d) at 9.00 am and 1.00 pm on Thursday 14 January;
 (e) at 10.30 am and 4.00 pm on Tuesday 19 January;
 (f) at 9.00 am and 1.00 pm on Thursday 21 January;
 (2) the Committee shall hear oral evidence in accordance with the following Table:
TABLE

Date

Time

Witness
Tuesday 5 January
Until no later than
Scottish Power; E.ON;
12.00 noon
National Grid
Tuesday 5 January
Until no later than
Scottish and Southern;
1.00 pm
RWE; Centrica; EDF
Tuesday 5 January
Until no later than
Carbon Capture and
5.00 pm
Storage Association;
Professor Jon Gibbins;
Ytilitu
Tuesday 5 January
Until no later than
Green Alliance; WWF
6.00 pm
Tuesday 5 January
Until no later than
Ofgem
7.00 pm
Thursday 7 January
Until no later than
Consumer Focus; Fuel
10.25 am
Poverty Advisory Group;
National Energy Action
Thursday 7 January
Until no later than
Energy Intensive Users
2.00 pm
Group
Thursday 7 January
Until no later than
Department of Energy
3.30 pm
and Climate Change
 (3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 4.00 pm on Thursday 21 January.

Charles Hendry: We discussed the programme motion previously and are broadly happy with that arrangement.

Simon Hughes: Happy new year to you, Mr. Bayley, and colleagues. I have no problem in principle with the programme motion, but a practical issue arises from the welcome fact that the Secretary of State is to make a statement this afternoon on the Copenhagen summit, which is obviously a matter of interest to all members of the Committee. It is scheduled to be the second statement, which means that it will be at a slightly uncertain time, but I would be grateful if the Committee would consider allowing us to be present for that. I think that there is a general interest, and it is highly relevant to what we are talking about. My best advice is that it will not start until after 4 oclockprobably more like 4.15 pmand I wonder if we could therefore be prepared to adjourn this afternoons sitting to attend the statement and then return. That is not seeking a change to the programme motion, but accommodating

Hugh Bayley: If the Committee wanted to do that we would have to amend the programme motion. I am asking the Clerk to look at that.

Joan Ruddock: I agree with the hon. Member for North Southwark and Bermondsey. It would be in everybodys interest, and I was going to ask to be excused from the Committee for that time and to leave my colleague in his place. We would be happy if it were possible to make that adjournment.

Hugh Bayley: There is a practical problem, which is that we have invited witnesses to come on the assumption that we are starting at 4 oclock. Is it the best estimate that the statement will start at about 4.15 pm?

Joan Ruddock: Probably. One never knows.

Simon Hughes: The practical solution, Mr. Bayley, would be that we start with the witnesses at 5 pm instead of 4 pm. That is the realistic implication, because by then the significant part of the statement would be complete.

Hugh Bayley: It seems to me that that is what the Committee wants to do, but the practical issue is that we have scheduled the first group of witnesses this afternoon to begin at 4 oclock, the second at 5 and the third at 6. It seems sensible to keep the Green Alliance and WWF at 5 and Ofgem at 6. Does the Committee want to run an hour later?

Simon Hughes: It would be easier for everybody if we were to do that today.

Derek Twigg: I have other commitments, so I want to stick to the schedule.

Hugh Bayley: Members have the programme motion in front of them, which suggests that the Committee meet at 4 pm this afternoon. Will anybody move an amendment to the motion?

Joan Ruddock: I do not seek to move an amendment to the motion, but perhaps if the three Front-Bench spokespeople were in attendance at the statement, that would be to our satisfaction and not to the detriment of the Committee.

Hugh Bayley: Mr. Hughes?

Simon Hughes: I cannot speak for colleagues; I was trying to accommodate the general interest in ensuring that the statement was well supported and well responded to. It is a practical suggestion, if it works and if colleagues are unwilling to run later

Hugh Bayley: The practical problem is that we would have to reschedule the witnesses and I cannot tell you whether that would be possible. I think that the wisest course is to meet at 4 pm as proposed in the programme motion, but to recognise that one Front Bencher from each partyincluding you, Mr. Weirmay not be present for the first hour of questioning.

Question put and agreed to.

Resolved,
That, subject to the discretion of the Chairman, any written evidence received by the Committee shall be reported to the House for publication.(Joan Ruddock.)
EN 02 RWE npower

Hugh Bayley: Copies of any memorandums that the Committee receives will be made available in the Committee Room.

Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.(Joan Ruddock.)

Hugh Bayley: As a consequence of having passed that motion, I ask the members of the public in the room to retire. We will commence the oral evidence sessions at around 11 am, but when we have decided who will ask which questions somebody will announce that we are ready for the public hearing.

The Committee deliberated in private.

On resuming

Hugh Bayley: We will now hear formal evidence. For the record, could the witnesses please introduce themselves to the Committee?

Sara Vaughan: I am Sara Vaughan, Director of Regulation and Energy Policy at E.ON UK.

Rupert Steele: I am Rupert Steele, Director of Regulation at Scottish Power.

Nick Winser: Im Nick Winser, Director of Transmission at National Grid.

Hugh Bayley: Thank you all for coming to speak to us today. Before calling Brian Binley to ask question one, I remind Members that questions should be limited to matters within the scope of the Bill and that we must stick strictly to the timings in the programme motion agreed by the Committee. I hope I do not have to cut people off mid-sentence, but I am required at 12 oclock precisely to bring this panel to an end. As I have indicated to colleagues, we will work through formal questions before I turn to the Front Benchers to see whether they have further questions.

Q 1

Brian Binley: Thank you, Mr. Bayley. The panel will know that Professor Stuart Haszeldine has described the CCScarbon capture and storagecompetition as dead on its feet, with only ScottishPower potentially being able to deliver by 2014. How feasible is the Governments target of having a CCS demonstration project up and running by 2014?

Rupert Steele: We are certainly happy that we can have a working project for 2014. We have a test rig running at Longannet at the moment, processing on a small scale. We have a had a significant breakthrough there in reducing the energy required to operate it by around a third, and those results are very encouraging. Provided that everything proceeds effectively, we are confident that we can be there for 2014.

Q 2

Brian Binley: The Government hope to have four demonstration projects running by that time. Is that feasible?

Rupert Steele: I think it would be difficult to have four projects by 2014. I am not sure that that is the Governments aspiration. I think they are saying four projects, the first by 2014.

Brian Binley: It certainly is the aspiration to have four projects running as a part of that programme.

Sara Vaughan: Ultimately, yes.

Q 3

Brian Binley: Can I finally ask whether you feel that the Government will have the money available to fund the projects in the way they hope?

Rupert Steele: I think that part 1 of the Bill is intended to achieve that. To the extent that a levy is raised, it can be spent only on CCS. If the Government are prepared to accept the impact on electricity prices as the costs are passed through to consumers, the funding will be there. We certainly do not think that there will be any difficulty in funding the demonstration projects that need to be funded under the mechanism. We think it is a good mechanism that will allow those very important projects to proceed without being constrained by the difficult fiscal situation that is upon us.

Q 4

Tobias Ellwood: Britain is obviously involved in carbon capture and storage. Looking over your shoulder, are you aware of any other projects around the world that are at this level or ahead of us in the game, that we could use as a successful example of a CCS project?

Sara Vaughan: Rupert mentioned his test rig in Scotland. We are co-owners of the rig and are participants in that test. E.ON operates across Europe and we have a number of test projects at pilot stage. We are considering up to seven projects, some further along in development than others. They vary in size, with the largest test, at 15 MW, quite considerable and others around 5 MW. We have a number of different projects to look at different chemistry and different technology to provide the best solution to take things forward. We are also building a coal-fired station in Maasvlakte in the Netherlands, which we hope to fit with carbon capture and storage. That plant entered for European Energy Programme for Recovery fundingthe Commissions fundingand we are confident that it was successful. While we remain committed to, and in the competition for, the Kingsnorth project, we are also pursuing a number of other avenues in order to get CCS off the ground.

Q 5

Tobias Ellwood: I pose the question because there is a lot of talk and positive inclination towards carbon capture and storage, but it is a very new science. I was searching for evidence to say that it is a workable solution. You are talking about continuing to do test projects and pursuing various initiatives across Europe. Are you aware of anywhere else outside your own interests that already has it up and running?

Sara Vaughan: I am sure you have already heardI do not want to teach you what you already knowabout the fact that there are a number of areas in which the different components of the project are working separately. You will therefore see examples of carbon capture and of carbon transport across the US, and you will see examples of successful carbon storage. It is putting it all together, and doing so on a certain scale, that, to my knowledge, have not been done to date.

Q 6

Tobias Ellwood: Is that why you think, following on from the question asked by my hon. Friend the Member for Northampton, South, it is questionable as to whether we will be able to do this by 2014?

Sara Vaughan: For our own part, the reason we are not committing to the 2014 date is that our project has always been about building a new super-critical coal-fired power station that has greater efficiency than the existing sub-critical power station. We made an announcement in October last year stating that, because of the recession and the demand destruction that it has caused, the demand gap that we expected to see in 2014 has now moved back to 2017. That means that we have had to move the construction of the plant back, so, for us, the 2014 date has followed that. However, the Government have made announcements stating that the 2014 date is merely one of the criteria that they will take into account when looking where to make awards in the competition, so the fact that we cannot meet the date on our timetable has not ruled us out.

Nick Winser: May I pick up on a component that is dear to National Grids heart? We are working hard to develop the mechanisms for piping the CO2, which is often the least discussed bit of this. One of the things that I think is worth bearing in mind, looking at any future commercial framework, is the benefit of building the pipes big enough, so that they are future proof and, particularly where there might be an opportunity for a cluster of emitters, we will not have to go back and build a second set of pipes. It is important to think about that.

Sara Vaughan: I absolutely support that.

Q 7

John Robertson: You mentioned the Kingsnorth CCS tower and how it has been delayed. Five years ago at a Scottish Committee, it was said that the earliest we could have a CCS plant up and running properly would be 2025. With the four projects that we are talking about going ahead, is there any likelihood at all of reaching that 2025 deadline that the scientists said was the earliest possible time we could expect up and running, fully functional CCS?

Sara Vaughan: 2025 for four?

John Robertson: For one. We are not talking about projects; we are talking about going on to the next step.

Rupert Steele: I think 2025 is extremely unambitious as a time frame. We are confident that we can be up and running in 2014 with a full chain, including using some of Nicks pipes to move the CO2 and working with Shell in the North sea to store it. As long as the Government proceed with getting all the regulatory arrangements in place, we will be there in 2014. I do not see why others could not be there before 2020, so I would be disappointed in the extreme if it took as long as 2025 to get anywhere with this.

Q 8

John Robertson: Perhaps I could ask Sara Vaughan whether the delays at Kingsnorth are an example of what is going to happen in years to come. Will you give us some kind of solid promise that those things are going to be in place and by a reasonable time?

Sara Vaughan: I am not in a position to give any solid promises, not least because we still havent had consent for the Kingsnorth power station to go ahead, despite the fact that we put in the application more than three years ago now, probably.
If I speak to my technical people, the engineers and the scientists who work in the business on carbon capture and storageand there are a considerable number of them in a number of different member statesthey are all confident about the technology and the fact that it will work. The areas that are more difficult are the political supportfortunately here in the UK we now have that political supportand the economics. The economics comes in two stages: one is paying for the carbon capture and storage kit, and the other, at the moment, is paying for the coal-fired power station to justify that investment to fit the kit on to. Those are actually bigger hurdles than the technology.

Q 9

Michael Weir: You have talked a lot about competition, but the reality is that only ScottishPower and E.ON are now involved. Can you tell us why other companies have dropped out? Given the situation at Kingsnorth is there, in reality, a competition going on?

Sara Vaughan: I think there is a competition. I hope Rupert and I would agree that there is a competition. I made the point earlier that as far as we see it, and we understand the Government see it as well, the 2014 date is only one of the criteria. Ruperts project is not fitting it on to a super-critical power station, which we understood was one of the criteria. It would be fitted on to a sub-critical power station, so I suppose from one perspective you could say that neither of us meet all the criteria. From another perspective you could say, Absolutely, we are head to head on it. It is difficult for me to conjecture why the other players dropped out. I think you are seeing somebody from RWE in the next session, so it may be that they can answer that question better for you.

Q 10

Michael Weir: If 2014 is no longer the important criterion, we were told that carbon capture and storage was essential to meet our climate change targets. If you are now telling us that 2014 is slipping, and might be slipping badly from what we hear, what does that say about our ability to meet those targets?

Rupert Steele: From our perspective, 2014 is still very much on the table. We actually think that it is quite important to get on with that, although both the Government and Opposition have come forward with various proposals to make CCS mandatory for new plants. That is extremely difficult with the level of knowledge we have of CCS and its performance and costs at the moment. The only way that we are going to solve that problem is by actually doing it. The sooner we do it the sooner people will be in a confident position to think about building new coal-fired power stations. So I think it would be a tremendous lost opportunity if 2014 was allowed to slip.

Q 11

Phil Willis: Procrastination seems to be not only the thief of time. On this issue, it appears to me that what the big power companies actually want is for somebody else to foot the bill, so that at some future time you would make all the profits. That is the reality of what we are talking about and that has been the case for some considerable time. Picking up on John Robertsons point, it is not simply about building a demonstrator; the Bill is really about getting a demonstrator that moves quickly into a fully fledged CCS-equipped plant. Given that the European Commission has allocated some â‚Ź165 million to a possible CCS facility using the Yorkshire power stations, why are you not jumping at that not only to use it as a demonstrator but to move very quickly, post-demonstration, into a fully operational post-capture, retrofit system?

Sara Vaughan: The money that has been awarded to Hatfield is for a pre-combustion rather than a post-combustion plant. Nick, are you involved in that?

Nick Winser: Yes.

Sara Vaughan: My understanding is that that will go ahead. It is a different technology, and one that certainly has a place in the market. Indeed, before the Government said that they would support only post-combustion, we were looking at doing a pre-combustion CCS station at Killingholme, but we had to put that on hold when the Government decided to support only post-combustion.

Nick Winser: I can confirm that we are working with Powerfuel at Hatfield. That is probably the most attractive opportunity for clustering, which I think is the thrust of your question. In that context, we would be seeking to set up the pipe network and in doing so we are looking at the opportunity of not just building individual pipes from each demonstrator, but trying to build larger pipes in a network, which would allow a significant number of CCS plants to be built.
It is worth remembering that of the order of 10 per cent. of the UKs CO2 is emitted out of the Humber power stations and other facilities. So if you can build a significant cluster there over a period of time, there is a very big prize. One of the issues with the CCS drafting in the Bill is that, in our view, it would be very nice if it could be made broad enough, expansive enough and perhaps flexible enough to encourage the roll-out of a significant network of CO2 pipes to be there in some senses ready for a number of power stations to connect in the Humber valley.

Q 12

Phil Willis: This is the point of my question. Would the three of you support amendments to the Bill that widened its scope in order to take in pre-combustion as well, to allow areas such as Yorkshire and the Humberwhich are some of the most polluting areas in Europe, never mind in Britainto be able to be fully utilised?

Sara Vaughan: I do not see that pre-combustion is excluded. It was excluded from the first competition that was scoped out by the Government, but they changed their policy to make it clear that they would support up to four stations. I think they have now made it clear that they will support pre and post and that pre is within the ambit of the Bill as drafted.

Nick Winser: We certainly think that two things could be done to broaden this. First, it could enable a broader financial mechanism to take forward not just some demonstration projects, but commercial incentives to build projects thereafter in significant clusters. That is a possible amendment that we would think was worth considering. Secondly, there could be some broadening to allow it look for the economies of scale of building fat pipes and pipe networks. My own view is that we are probably going to need that some time in the next few years. It may be that this is not the right moment to put it in, but if this is not the moment, it may come quite soon, because this area of technology will need quite a lot of encouragement. It is a hugely important part of meeting the targets and security of supply.

Sara Vaughan: I would echo that. I think the cluster point and building for the future is an incredibly important point to bear in mind. One of the things that we have discussed with the Government, both in the context of the competition and more broadly, is that we do not want to build a Kingsnorth-sized pipeline at Kingsnorth. We want to build a pipeline that could take it if RWE were to build a coal-fired power station next door. ScottishPower has a gas-fired power station down there and, I think, is potentially looking to build another. In the future we may well be capturing carbon from gas as well as coal. Looking to the future and looking at Kingsnorth and the south-east, where the demand is, we believe that that is another very apt place for a cluster.

Rupert Steele: There is also scope for a cluster around the central part of Scotland as well.

Q 13

Phil Willis: Do you think that the Bill, with some amendment, is sufficient to deal with those issues?

Nick Winser: Yes, the amendments could either be added to this Bill or come through another Bill, but, in the next couple of years, to take this forward with real vigour we will need those broader enabling powers in place.

Hugh Bayley: Charles, you are trying to catch my eye.

Q 14

Charles Hendry: I have a specific point on that: how many clusters can the UK sustain? We have a project in the firth of Forth and the Thames. That is difficult to put into a cluster, and there is obviously the Humber in the middle. Is it reasonable for the UK to look at having three clusters or should it be prioritising and saying that there can be only one?

Nick Winser: I think that it is reasonable to look at three. It may be that, as we see the thing play out, it is clear that we should prioritise one. But at this point, three is not unreasonable.

Sara Vaughan: You need to look at the present and the future. While the Humber is, at present, probably the largest-emitting area, if you look to the future it may be that many of those businesses, industries and power stations that emit there will close and other power stations will open elsewhere. We need to keep both in mind.

Q 15

Charles Hendry: On a more general question, can you help us to understand how the competition has worked and not worked? Most of the companies involved in bidding have pulled out and it is significantly behind schedule on where it had hoped to be. What has gone well with the consultation process and the bidding and what could have been done better, so we can learn for the future?

Rupert Steele: It has been a long process. Part of that comes from the nature of European public procurement law and the processes that the Government have to go through to effect a legally satisfactory procurement. It is a slow and difficult process and I know that people in ScottishPower have found it quite challenging from that point of view, but I think that that is inescapable.
I sense that there was some debate over a period about where the money was coming from, which I think has been resolved by part 1 of the Bill, and that may have affected the timetable. Hopefully, we are now very close to the contracts for the feed studies being placed and, therefore, able to go forward with a renewed sense of purpose. It is difficult for us to speculate on why others have fallen by the wayside during the process. I would say that the process has weeded out the serious proposals from the less serious ones.

Hugh Bayley: This needs to be the last question on carbon capture.

Q 16

Michael Weir: I want to follow up something that Sara Vaughan mentioned about the pipeline and the gas. The Bill restricts the funding to plants powered by coal or coal and biomass. Should that be extended to cover natural gas and other fuels?

Sara Vaughan: Rupert mentioned a number of reasons why the competition has been delayed. One reason is that the Government have been sorting out their policy on coal-fired power stations, which they, to a greater or lesser extent, have done at the moment. I do not think that it is perfect yet but that is probably the subject of another question. They have not yet sorted out their position on CCS in relation to gas. The policy paper on coal says that they have not made decisions on that yet. I suspect the answer is that that is not in here because the policy on it is not yet settled.

Q 17

Alan Whitehead: Can I turn to the method of funding CCS? You mentioned, Mr. Steele, that the funding had been sorted out and is to be via the CCS levy. What principles do you think should be applied in that levy? Should it be market share? Should it be profit? Should it be turnover? How could it be levied effectively and fairly?

Rupert Steele: We have some good precedents here because we already have implicit levies for the renewables obligation for CERT, the carbon emissions reduction target, and CESP, the community energy saving programme. We have the social voluntary agreement and the Governments proposals for feed-in tariffs. They all, essentially, work on a market share basis. Some of themthe ones focused on the domestic marketstend to go by customer numbers. The ones that relate to the market as a whole, which I think this would be, go by megawatt hours.
A flat levy is the tried and tested route: it works very reliably because it is reasonably stable. Although this weeks weather may have affected demand a little bit, over a year demand is relatively predictable and therefore you know how much money you are going to raise, which is very important. We think that trying to link it to other things would inevitably complicate the tax base and effectively make it unpredictable. The other thing is that if you tried to link it to something such as carbon content, you might find that the promoters of CCS projects, who tend to be the people with coal-powered fire stations, would need to recover more money in order for it to be viable for them to go ahead. So you might end up slowing down the development of CCS.

Q 18

Alan Whitehead: So you are suggesting that this should be universal? Should anyone be exempt from paying the levysuch as, for example, renewables suppliers?

Rupert Steele: Well, the renewables obligation does not exempt renewables suppliers. I think that one of the problems that you get into is that you get tangled up in working out what has happened to the ROC, the renewables obligation certificate, and whether a particular bit of electricity, as it is supplied, is renewable or not. Obviously, we have a system for tracking that for the purposes of advising people, on their bills, about where their energy comes from. But it is pretty approximate. If you want to upgrade that system to a standard that is good enough for fiscal purposes when hundreds of millions of pounds are involved, then we need to rethink completely the way we do those calculations.

Hugh Bayley: I think we should move on to social tariff questions.

Q 19

Simon Hughes: Obviously, the Government are moving in the Bill from a voluntary system to a compulsory one. Do you accept that that is because the voluntary system has failed?

Rupert Steele: No.

Sara Vaughan: Not at all.

Rupert Steele: The voluntary system has worked extremely well. All the companies have complied with their commitments. They said how much they were going to spend. The money has been spent and has done a great deal of good. If this is going to be a permanent feature of the energy marketpeople clearly think it is going to beI think it is completely appropriate to put it on a statutory and formal basis. I think that the design of what is coming out of this will be heavily helped by the valuable experience that we have had running the voluntary system over the past couple of years, and that we will have again next year.

Sara Vaughan: I very much agree with that. If you look at Ofgems report in relation to 2008-09 and the voluntary agreement, you will see that, even though the target that was supposed to be hit was £100 million, £157 million was actually spent on social support. If you contrast that with the situation before the voluntary agreement, where I think the figure was around £50 million a year, there has clearly been a great deal of success in terms of the operation of the agreement. I agree with Rupert, however, that you cannot just carry on rolling over voluntary agreements. At some point, you have to formalise and put those things on a statutory footing.

Q 20

Simon Hughes: So you both support the statutory footing, although you do not think that, so far, the system has failed. Do we therefore have a common definition? There are lots of debates about fuel poverty, but, for the purpose of this one, are you prepared to accept that the normal definitionpeople spending more than 10 per cent. of their income on their fuel billsis the right one and should be the backdrop to the debate about what we do next and what we seek to achieve?

Sara Vaughan: It is, as you say, the accepted definition. When we look at people in fuel poverty, we tend to distinguish between those in fuel poverty and those in severe fuel poverty, by which I mean those who spend more than 20 per cent. of their income on heating their homes. There are probably around half a million homes in that situation in England. I think the priority in the first instance should be to help those in severe fuel poverty, many of whom will also have been in fuel poverty for a long period.

Rupert Steele: The Bill clearly uses the statutory definition of fuel poverty, which is rather different from the 10 per cent. definition. It essentially talks about people having difficulty heating their homes. On of the problems with the 10 per cent. definition is that it under-rates the impact of income initiatives on dealing with fuel poverty and therefore potentially distorts policy. For example, an initiative that increases somebodys income by an amount equal to half their fuel bill may not be sufficient to take them out of fuel poverty, but a 10 per cent. reduction in their fuel bill might be. That distortion means that, if we are going to stick with that definition, we need to be aware of its deficiencies. I think that it would be good in time for people to see whether the definition could be improved, because it is defective in that particular respect.

Q 21

Simon Hughes: Thank you. I may want to return to that, but may I now ask about the cost? The implication of the legislation is that the amount spent on social tariffs might be increased. Consumer Focus has estimated that, in the past year, across the board, your companies spent half a per cent. of your turnover on social tariffs. What was the figure in cash terms and what was the percentage in your spend terms for the last full year for which you have the figures? Moreover, what will the Bills implication be in relation to how much you expect it will cost you for the first year of the compulsory system, in terms of both cash and percentage?

Rupert Steele: I cannot give you the full numbers off the top of my head, but what I can say is that this year our target was £10 million, give or take a few bob, and that we spent it in full. The Government have said that they are targeting a total cost, in a few years time under this system, of £300 million. They announced that in the pre-Budget report. Our company has a 10 per cent. market share, so that would be a spend of £30 million. What proportion it will be of peoples fuel bills will depend on what energy prices are.

Sara Vaughan: Comparable figures. Our voluntary agreement target for the latest year we have figures for, which is 2008-09, was £15 milliona little bit larger than Rupertsand we spent £20.1 million. So we overspent by £5 million. That approximated at about £2.80 per customer account that we have, which was actually the second highest spend of the big six suppliers. I do not have a percentage, I am afraid, but I would agree with Ruperts maths on the scaling up to 300.

Hugh Bayley: Simon, I have one or two other colleagues to bring in on this topic.

Simon Hughes: Can I ask one last question? Then I will hand over to colleagues.

Hugh Bayley: Yes, of course.

Q 22

Simon Hughes: One of the other definitional questions is, Which groups should be included? Chronic illness is a suggestion, as well as old age. Can you give us your wisdom as to the categories that should benefit, including on the controversial issueif you wish to comment on itof whether everybody of pensionable age should benefit?

Rupert Steele: I think the most important thing is that we need to be able to find the people who we give the benefits to, and so whatever definition you have needs to be a group of people that somebody can identify. For example, we are in the process of doing a pilot based on people over a certain age on the pension credit guarantee. DWP is going to send us the data file and we will then apply the credits to those peoples accounts. We have a reasonable degree of confidence that we will be able to get the benefit to the people concerned.
For somebody who is seriously ill, I think the question would be, How do we know, and what is the process for managing that? If you can find a process, I think we would be happy to accommodate anybody, bearing in mind that the more people you put in the basket the less each person will get.

Q 23

John Robertson: Can I get you to write to us with the up-to-date figures and percentages that the questions asked by the hon. Member for North Southwark and Bermondsey were about?

Sara Vaughan: Yes, of course.
Shall I just respond to the question? In terms of the people who we believe should receive assistance, we would probably look at the core group that we think should receive assistance on an enduring basis. That is formed of those people who are least able to react to the sorts of shocks in fuel prices that are likely to come their way, inevitably as a result of things such as feed-in tariffs, renewable heat incentives and CCS levies coming in. They are likely to be the sorts of people who are on fixed incomes, such as the elderly, who may well need support through social price support on an enduring basis.
There are going to be other people who are also in fuel poverty but may well be able to be helped out of it through energy efficiency measures and improvements to their homes, which will get them out of fuel poverty on a sustainable basis and may cause them not to need any element of social price support in addition to that. Our own fuel poverty programmeour own social programmehas tended to focus on the elderly as those who are most in need and least able to get themselves out of fuel poverty. That has been the focus of our own approach.

Q 24

Hugh Bayley: Could I just go back to this question of additional information? I think Simon Hughes and John Robertson were asking the question in relation to your individual companieshow much your companies spent on the social tariffs last year. Sara said she would be able to provide information. Rupert, would you provide it in relation to ScottishPower?

Rupert Steele: I could give you the cash figure and we will look up the percentage and provide it to youthat is not a problem.

Hugh Bayley: Thank you. As we will discuss this in Committee early next week, would you provide the available information by the end of this week?

Q 25

Natascha Engel: Can I just add something? It would be most interesting to have the projected figures after this is on a statutory footing. I mean the future projected figures of the amount spent on social tariffs by individual companies after this is on a statutory footing, as opposed to past years, when it has been on a voluntary basis.

Rupert Steele: We will do what we can. We cannot do percentages because we do not know what the prices are. We can give you the absolute amounts.

Hugh Bayley: That point was well made. I want to call Anne Main, who has waited patiently.

Q 26

John Robertson: We know what the prices were, so we can have a percentage up to date.

Rupert Steele: Yes, absolutely. You can have historical percentages; you cannot have future ones because we do not know the price.

Hugh Bayley: Thank you, both. Anne Main.

Q 27

Anne Main: Thank you. I noted with interest, Mr. Steele, that you said it was about finding people to ensure that they get the support they may need. Would you then support the provision in clause 10 of the Bill to allow a redistributive mechanism to recognise that some suppliers have more people eligible for social tariffs? Secondly, do you think that having all these different targetsof people who are elderly, chronically sick and so onis going to be so complex that it may be unworkable? I am a little concerned about whether we are going to get it focused enough and I would like your view on that.

Rupert Steele: On the first question, on the reconciliation mechanism, it is crucial to this kind of endeavour to ensure that these customers remain attractive to us to supply. The last thing that we want is a situation where we would rather our competitors supplied these customers. The incidence of this kind of customer might vary between companies and the reconciliation mechanism protects companies against that effect, so that we have an incentive to go out and find these customers and continue to give them the best possible opportunities to be with us.
It is essential to have a reconciliation mechanism that can work either through the mechanism in clause 10 or a provision in clause 9 regarding spending targets that would have a similar effect. One way or another, it is really important that we have an incentive to service these customers. Otherwise, people will inevitably look for sales channels that do not tend to pick up old age pensioners, and that would be a disaster. That is the first question.
Is it going to get too complicated? Not if we can help it. We spend a lot of time in discussion with the Department to ensure that the proposals are feasible and can be implemented. It is the first question that we always ask. We will work with the Government to make sure it is feasible.

Q 28

Anne Main: I would like to go to Ms Vaughan on that point. You said that there were customers who could be helped in certain wayssome with more installation, others with the billing. Do you think that billing has been addressed enough in the Bill, so thatrather than it being in legislationcustomers can have information about how to help themselves and about how you can help them?

Sara Vaughan: All suppliers, certainly my own company, work very hard with their customers to inform them about how they can reduce their bills through taking out energy-efficient measures: loft insulation, cavity wall insulation, low-energy light bulbs and all sorts of other methods by which they can reduce their bills. That is something that we see as an absolutely fundamental part of a sustainable answer to fuel poverty. It is not just about throwing money at the issue. It is about finding a long-term solution to it.

Hugh Bayley: We should move on to the question of Ofgems powers. Mike Weir, you were going to kick off on that.

Q 29

Michael Weir: What impact will the provisions in clauses 16 and 17, which require Ofgem to take into account carbon emissions and security of supply, have on how Ofgem works?

Nick Winser: For our part, we are very supportive of that change. We think that its effect willhopefullybe for Ofgem to feel that it has a remit to look further ahead and to look to mechanisms that will drive towards a low-carbon, secure and affordable system in the future. So, it seems to us to be a thoroughly worthwhile amendment.

Q 30

Michael Weir: One of the great arguments has been on the question of transmission charges and their impact on renewables. Do you think that putting those under Ofgems regulation will mean that it will take a different view on issues such as these? Will it impact to that extent, or is it more of an aspirational thing for the future, as you seem to imply?

Nick Winser: Many decisions are made by Ofgem on a whole variety of financial arrangements around the industry. I believe that those sorts of changes will probably impact on some of them and not on others. On the transmission charging question, I doubt that this will impact on transmission charging tariffs. Essentially, I think Ofgems viewalthough you would have to ask itwould be that if there was to be a further subsidy introduced by not charging the full cost of transmission, it would be better for it to be introduced in an explicit way, rather than through the back door of the transmission charging arrangements. However, I am aware that you might not entirely agree with that point of view.

Q 31

Michael Weir: We could have an interesting argument on that one. Moving on, specifically to national grid, clauses 18 to 25 introduce a market power licence condition, strengthening Ofgems power to investigate sanctions in respect of abuse of the market. Can you explain how the current system of balancing transmission-related constraints gives electricity generating companies an opportunity to abuse their market position? To what extent is that being done?

Nick Winser: The fact of the matter, the issue that that seeks to tackle, is that at any time on an economically run transmission system it is probably right for there to be a degree of constraint. That means that you do not build, economically, a system that for every minute of the year can transport all power from any point on the system to any other point on the system. That is probably not an economic thing to do. Nevertheless, it is well worth having a very robust transmission system that can get quite close to that.
You would expect, naturally, occasionally to have places that you cannot move power from. For example, if you get a certain configuration of lots and lots of power stations wanting to run in one particular area for one short part of the year, it might be economic not to be able move for that power. The cost then comes from bringing on power stations, which might be more expensive elsewhere, to displace the ones that cannot run fully. So I think that it is generally accepted, at least in principle, that that is a sensible way to run the industry.
The significance of this now is that the industry will go through massive change through the sources of electricity generation. The network will therefore need to have very significant investment. Why is that? Because we see the future as probably having large amounts of power generated a long way from where it is consumedprobably to a greater degree than it is today. Even after you have all the energy efficiency that we need, which is very significant, and lots of local distributed generation, there will still probably be a requirement for an increase in the amount of power that has to move in bulk from offshore and around the coast to the load centres.
Anyway, there are probably cases where you would expect occasionally to have monopoly positions in the system. In this phase of change, going forward, which is going to be rapid with an awful lot of investment, the key to solving this problem is for us to be able to invest vigorously in the system and get the right system built. That is why we can be very supportive of the Planning Bill that came in last year. We worked very hard with Ofgem to try to make sure that we build enough transmission quickly enough at all times. So that is the solution that we should be aiming for, and most of our attention should be focused on making sure we build enough transmission.
Even with all that said, there will probably still be significant amounts of monopoly positions. Clearly, there is existing legislation that can control that, such as the Competition Act 1998 and other competition legislation. It is Ofgems viewor certainly the Governments view, having talked to Ofgemthat some enhancement to that may be required. I am probably not competent to judge whether that is the case. However, focusing on that issue, there will naturally be some monopolies and probably in the next 10 or 15 years those monopoly positions may increase. If the view is that existing competition legislation is not sufficient, then the National Grid has no objection to that.

Hugh Bayley: I am going to turn now to John Robertson. I said that at a quarter to 12 I would run around the Front Benchers to see whether they had any further questions. If we have some time left I may come to other colleagues who want to ask about these regulatory matters.

Q 32

John Robertson: I want to come back to a question that Mike Weir asked and which I do not think you answered. To what extent have the companies exploited the system?

Nick Winser: From a National Grid perspective, we do not do analysis of what would constitute exploitation of monopoly positions. The regulator has done several investigations over the last 20 years into this. These are very complicated calculations because these are very capital-intensive plants which last for a long time. So as an observer of the regulators reports on thisand they date right back to Professor Stephen Littlechild in the early 90sI know that these are difficult calculations. It is work that is done by Ofgem and not by the National Grid and therefore I would not seek to give an answer. It is quite a complicated thing to work out and it is not part of our remit to work it out, frankly. It is a matter for Ofgem.

Sara Vaughan: May I just come in?

Q 33

John Robertson: I am sorry, Sara. I want to ask Rupert a question because his company is one of the companies that were investigated in the past, along with Scottish and Southern Energy, following the allegations that they had supplied electricity to National Grid at excessive prices. This did not go forward under the Competition Act, mainly because of the time constraint; basically, they were not sure whether we would get a result on it. Do you think the market power licence condition that is going to be introduced in clauses 18 to 25 will allow the Bill to provide a fair and proportionate means of dealing with these kinds of alleged abuses?

Rupert Steele: We were indeed investigated under the Competition Act. The regulator closed that investigation without an adverse finding against us. It muttered various reasons, but the fundamental fact is that it did not believe that it had a case against us that it wished to pursue, having investigated the matter thoroughly and with our full co-operation. We should not start from a principle that, as it were, we were guilty because we were investigated when the conclusion was to close the investigation without an adverse finding.

Q 34

John Robertson: And the market power licence condition?

Rupert Steele: Do I think that the market power licence condition is a good idea? I am cautious about it because the balancing mechanism is the thing that ultimately signals the need for investment in the networkin the power generators and generation plants. By potentially muffling those signals, this condition could have a negative impact on the provision of time and investment. We would like to see the clause amended to require the Secretary of State to consider and form the opinion that any initiative that he takes under this condition will not adversely affect investment in the sector.

Hugh Bayley: I must turn now to the Front Benchers.

Q 35

Charles Hendry: Going back to the carbon capture element, the objective of the Bill must surely be to make Britain one of the most attractive places in the world for CCS development. We have the skills in the North sea, we have the sequestration sites and we have the need. Does the Bill on its own move us from where we areI would argue that we are lagging globallyto being in a position where we will be natural leaders? Does it give you, particularly the two companies with foreign parentage, the ability to go to your boards in Germany and Spain and say, This now does enough to make Britain the most attractive place to invest?

Sara Vaughan: We still have a number of concerns around the policy. It relates back first of all to something that does not actually appear in the Bill, which is around the policy that was announced on coal-fired generation. The Government said that they will conduct a rolling review of whether the technology is economically and technically feasible, and it will report in 2018. At that point, if it is not, they will fall back on some undefined contingency regime.
That amount of uncertainty makes it very difficult for anybody to make any investment at all before 2018, because you do not know what it is that you are trying to hit and you do not know what it is that you might be subject to if you do not hit it. That is something that does not appear in the Bill. On the face of the Bill itself, we are encouraged by the fact that a power has been put in, effectively to fund retrofit of CCS to stations when they have had a demonstration at that station, but it is only a power.
You might go ahead and invest in your very expensive coal-fired power station with its demonstrationwe are talking billions of pounds hereand then at some date in the future you might be told to retrofit CCS to it. If the market at that point will support it through the EU emissions trading scheme, or otherwise, that is fine, but if not, you are relying on a potential power that at that point may or may not be exercised to fund the retrofitting. That raises a large number of uncertainties that people will have to take into account before investing.

Q 36

Charles Hendry: Do you think that primary legislation is needed to address those issues or can it be done through different policy announcements or secondary legislation?

Sara Vaughan: The first point could be dealt with through policy announcements. Whether those would then have to be backed up by primary legislation would depend on exactly what the policy looked like.

Rupert Steele: From our point of view, part 1 of the Bill is excellent. We have suggested to one or two people that it would be nice to have a clause to make sure that the exceptions to the levy do not affect competition. But, substantially, we think that part 1 of the Bill provides everything that is needed to create a really solid regime that will make CCS very attractive financially as something to develop in the UK. Clearly, it is not everything that we need. For one thing, it depends on what schemes Ministers write under the powers presented. They could be schemes that are effective or schemes that are ineffective.
Secondly, there is a whole regulatory system around the storage of the CO2. A consultation on that has just closed. We do not know what the Government will finally decide on that. So there is a lot of work still to do in the political sphere before this is done, but this is a huge step forward to making the UK an attractive place for people to develop CCS.

Q 37

Charles Hendry: Okay. On a different part of the Bill, can I ask your views on clause 27, Adjustment of charges to help disadvantaged groups of customers, which gives the Secretary of State power to make a regulation to require charges to be adapted if, in his view, some customers are being treated less favourably than others? Are you anxious about the very open-ended nature of that or is that something you are comfortable with and think is an important move forward?

Rupert Steele: A version of this has existed in the Utilities Act 2000 and has not been used, so I guess on that basis it has not been a problem to date. The thing that you would need to look at if you were actually going to utilise these powers would be the effect on the market and on other consumers. It may be that the powers in part 2 of the Bill on fuel poverty are a more effective way of dealing with that, combined with the non-discrimination powers that have been taken by Ofgem pursuant to the probe.
I am not sure that we have a great concern about these being in reserve on the statute book, although there is a clause that says that if the Secretary of State does not know any data, he can make it up. [Interruption.] It is clause 27(7). We have suggested that that might be augmented with some obligations on the Secretary of State to give his reasons and generally be a bit more thorough about it.

Q 38

Hugh Bayley: Can I ask whether Simon or Mike have questions they want to come in with?
Simon Hughesindicated assent.
Mr. Weirindicated dissent.

Q 39

Simon Hughes: I should like to ask one question on CCS and one on charges. On CCS, there is an argument that says that, given developments in the States and elsewhere, the technology will be developed in other countries and it is nonsense for us to replicate other efforts and spend all the money here, because we will be able to benefit from other countries and other companiesyour companieselsewhere doing the same. Is there a real need in your mind for us to proceed to develop CCS, to have the funding and to work through the technology on UK land?
You have talked about the uncertainties, but is it not better just to be told from the beginning, and should not the Bill tell you, that all new coal-fired power stations will have to have CCS? Would that not give you much better certainty than this possible retrofitting laterthis equivocationthat is the policy at the moment?

Sara Vaughan: I think I would answer that in a number of ways. I mentioned before that, across Europe, E.ON is doing a number of pilot projects. We are hoping as a group to learn from all those and to be able to take what we learn and bring it back into the UK. One point that we always made about Kingsnorth was that we did not build it as a CCS testing bed, but we built itwe wanted to do sobecause the UK needed coal-fired power generation. We are still of that view and the Government are clearly of that view as well, as coal-fired power generation with CCS is part of the mix. Therefore we should be looking to develop that in the UK and drawing on all the know-how that we can possibly get from across Europe and elsewhere to expedite that as much as we can.
The UK is actually very well placed for CCS because of the offshore gas fields that we have as CCS storagemuch better than Germany, for example, where they have been having issues with onshore storage. I certainly do not think that the UK should sit back and wait for somebody else to do it. I think that we should power forward and do it ourselves.

Hugh Bayley: I have no discretion to extend this part of the sitting beyond 12 oclock, so I turn to the Minister.

Q 40

David Kidney: I have two issues to raise on social price support. First, the energy companies usually get nothing but brickbats, so I say thank you for taking part in the data matching pilot that is to take place this year. Thank you also for overspending on the voluntary agreementsthe extra £57 million in year 1; keep it up! On that point, what does each of your companies do under the voluntary agreement other than offer a social tariff?

Rupert Steele: In our case, we support the ScottishPower Energy People Trust, a body that conducts a number of local initiatives, including things such as benefit entitlement checks; for every pound that we spend on that, £20 on unclaimed benefits is identified. We also support the home energy heat helpline. We have a number of initiatives with people who are on Fuel Direct, who have large debts, and we have reassessed some of those. There has been a variety of measures aimed at achieving the most that we could for fuel poverty with the sum of money available.

David Kidney: And you, Sara?

Sara Vaughan: We provide energy efficiency measures as part of our Warm Assist tariff. In partnership with Age Concern, we also pay cold weather payments to the elderly when the temperature drops below a certain level. We have a caring energy hardship fund, a trust fund similar to the one that Rupert was talking about. We also offer benefit checks and a number of other initiatives. It is about advice, support and positive measures as well as just being about discounts off bills.

Q 41

David Kidney: Sara, how does the reconciliation mechanism benefit your company if the measure is in kilowatt-hours rather than customer account numbers?

Sara Vaughan: It is not about benefiting our company. It is actually about making the provisionthe pass-through, if you likeless regressive and more progressive on the basis of the figures that we have seen. The way that it works at the moment is as a flat-rate pass-through. It is like a tax; if it is £23, it is £23 whether your bill is £600 or £300. If you look at somebody who is a low user or if you look at a typical fuel-poor customer whose usage tends to be lower, then it may account for 10 per cent. of their bill, whereas it will account for only 3 per cent. of the bill of a higher userand the customer who has a higher income.
What we propose is that instead of it being on a flat-rate basis it should be on a per-unit basis. Therefore, those fuel-poor customers who use less energy would end up paying less as a proportion of their total bill. It is not about benefiting E.ON at all; E.ON still ends up effectively bearing the same costs. It is about making it a more progressive and less regressive tax. That is something that Ofgem and DECC have both picked up on in recent consultations as well.

Simon Hughes: Do I have time for one question?

Hugh Bayley: Simon, you have about 50 seconds and counting before the chopper comes down.

Q 42

Simon Hughes: Clause 26 proposes allowing Ofgem to impose penalties on companies over a five-year period rather than a one-year period. Would you have any objection if that allowed complaints already lodged, or arising from issues that have already happened, to be investigated for five yearsthat is, it would not be simply prospective, but would deal with issues that have already arisen?

Hugh Bayley: You had better stop there, Simon, or there will be no time for an answer.

Sara Vaughan: As a lawyer, that makes me shudder with horror, because of retrospective penalties.

Rupert Steele: I think that we would be unhappy about retrospection.

Hugh Bayley: Thank you. That brings us to the end of the time allocated by the Committee to ask questions of these witnesses. On its behalf, I thank Rupert Steele, Sara Vaughan and Nick Winser for attending the sitting and for their answers. Could the next set of witnesses please come forward?

Hugh Bayley: Good afternoon. I would like to welcome the second panel of witnesses. Could you please introduce yourselves to the Committee?

Dr. Keith MacLean: I am Keith MacLean, Head of Policy and Public Affairs at Scottish and Southern Energy.

David Mannering: I am David Mannering, Director of Economic Regulation at RWE npower.

Philip Davies: I am Philip Davies, Director of Regulatory Affairs at British Gas/Centrica.

David Love: I am David Love, Head of Regulation for EDF Energy.

Hugh Bayley: Thank you very much for coming to meet and talk with us today. I call Brian Binley.

Q 43

Brian Binley: Just to prove that this is not a game of two halves, I shall ask questions similar to those that I asked in the first part of the sitting. I would like to know from each of you how feasible the Governments target is of having a CCS demonstration project up and running by 2014. I do not care who kicks off.

Dr. Keith MacLean: I reiterate what Rupert said. There is a possibility there. In overall terms, we need to be moving as quickly as possible to a collaborative rather than competitive approach on a lot of these things. You heard the evidence earlier about the need to have the supporting infrastructure, the transportation infrastructure and the grouping of the projects. We would make much quicker progress if we all sat down and tried to work out how best to do all these things together, rather than pursuing a pure competition approach.
Having said that, all the work has been done on that project. If ScottishPower is confident in the 2014 time scale for that, I think it is realistic, but our interest would be in the other three coming along and how quickly that can happen. Working in collaboration will take us much faster towards realisation than competition will.

David Mannering: We answer the question by asking what the two key stages are in building a new plant. They would be how long it takes to get all the planning consents necessary and then how long it takes to build the plant once you have the planning consents. If it takes four to five years to build the plant and it is a case of how long is a piece of string to get the planning consents, I guess one would be looking at a minimum period of about seven years, so 2017 would probably look more realistic.

Q 44

Brian Binley: But in seriousness, we have been talking about this issue for some time. Is that really a viable answer to give us when you should have been working on this some time ago?

David Mannering: It would be a viable answer for any of the new demonstration projects under the extended competition, because we do not have any details about how that would work yet.

Brian Binley: Any other comments?

Philip Davies: Centrica is not currently actively developing CCS projects, so it is probably best for me to defer to my competitors on this, although I would say that the time scales do look challenging.

David Love: Equally, EDF Energy is not part of any of the pilot projects in the UK, although we do have some parts in demonstration projects across Europe. On the timings, is 2014 feasible? Again, Rupert was very confident from a ScottishPower perspective. I just echo David Mannerings comments. A lot of joined-up policy is needed to get these major infrastructure projects goingthe planning, all the permissions you need, as well as supply chain issues. We are obviously involved in new nuclear in a big way in the UK. That is our main focus. There are similar issues there; trying to get planning and joined-up thinking from various Government Departments will be vital to get that sorted.

Q 45

Brian Binley: Is the real truth that you really did not want to get involved in this rather frontier, pioneering stuff and you wanted other people to do it? What other factors made you decide not to be involved in the competition?

Dr. Keith MacLean: We were at a very advanced stage of a project with BP from several years ago which, as you heard in the first part of the sitting, was not allowed into the competition because it was a pre-combustion project with gas. There was no shortage of ambition to move forward with this technology. The limitations that were put on through the competition rather stifled it.

Philip Davies: Similarly, we were involved in the earlier phase, looking at pre-combustion technology, which we have not pursued, but we have to make choices about the investments that we make. We are making a substantial investment in the future of nuclear through our investment in British Energy of £2.3 billionand investing£3 billion in offshore wind. We are investing £5 billion by 2020 in upstream gas production and we are also investing in storage projects. So we are investing hugely across the board in our energy infrastructure and energy projects for the future. To come back to the point about the decision about pre-combustion versus post-combustion, that was one factor at least that influenced us in not further pursuing CCS interests at this time.

David Love: From our perspective, we are committed to helping the Government meet their policy objectives in decarbonising generation. Our role in that in the UK is particularly focused on nuclear. Elsewhere in Europe, with the NPW in Germany particularly, we are looking at CCS.

Q 46

Tobias Ellwood: Looking at the statistics, the amount of electricity that you supply, whether by coal or otherwise, is impressive from the UK perspective. Therefore it is quite sad that you have not been able to embrace this opportunity to participate in carbon capture and storage. You obviously have your own reasons and you have illustrated some of those now. They seem to hinge round the concern about pre-combustion. If the Bill were to be amended so that funding could apply to pre-combustion, although there is a question as to whether it is the Bill itself or just the intention from a retrofit perspective, would that change your stance at all?

Dr. Keith MacLean: Again, as was said in the first part of the sitting, the Bill does not exclude pre-combustion for the remaining three of the four. It was the original competition for the first of those four which eliminated pre-combustion. We would certainly be hopeful that there is scope within the funding mechanism laid down in the Bill to support at least one project with pre-combustion.

Q 47

Tobias Ellwood: How do the other panellists feel?

Philip Davies: It is possible. We would have to look at the options, but I think I would agree with the comment that was made.

Q 48

Phil Willis: This is really important. Does the Bill as currently drafted give sufficient encouragement and an appropriate regulatory framework for pre-combustion for the three remaining plants to go forward? Is all the pipework, which is essential if we are to move from demonstrated to full production, covered in the Bill? Can you give the Committee sufficient comfort that our drafters have got it right, or should they be sacked?

Dr. Keith MacLean: The drafting is wide enough to cover all of that. The real test will be the actual funding levels that are to be raised by the levy. The spending in all of this is going to be quite lumpy. There will be the projects themselves and, as National Grid was saying, there will be the transport infrastructure. If we are going to be levying over 20 years in order to raise all this money, we will not have an even spread of that money actually being spent.
I think the real test will be whether the up-front funding that will be required in order to make some of the strategic decisions for pipe sizes and projects is possible. The Bill sets out the basic structure for raising the money, but the actual decisions about how much money that will be, how it can be spent and how finance for the up-front expenditure will come are tests for the secondary legislation and further policy development.

Q 49

Tobias Ellwood: May I ask David Mannering a specific question? You mentioned that you were at advanced stages with the Government on looking at a project in Tilbury. For the record, can you state why you decided to withdraw?

David Mannering: The issue for us is that we feel that carbon capture and storage is still very much at the demonstration phase. We need to be sure that the technology works. We need to walk before we can run. Part of the difficulty was alluded to by Sara Vaughan. There is the potential that one builds a 1,000 MW generating station, for which demonstration funding is provided for 400 MW, and that at a later stage one is required to put CCS on the balance of the plant, for which the funding arrangements and the market price are extremely uncertain.

Q 50

Tobias Ellwood: So Brian Binley was right when he suggested that you are allowing other people to do the dirty work and see what comes up.

David Mannering: I do not think it is a matter of others doing the dirty work. It is a question of recognising that we are at a demonstration phase and we need to understand how the investment and research will be recovered.

Hugh Bayley: I should say that a lot of colleagues are trying to catch my eye on this group of questions, so I ask colleagues to be brief.

Q 51

Michael Weir: I want to follow up on pre and post-combustion. Given the terms of the Bill on restricting funding and the terms of the Governments competition, what realistic chance is there of any pre-combustion research and development being done in the UK in the current circumstances? Has that boat effectively now sailed? Is it now post-combustion or nothing?

Dr. Keith MacLean: I should reiterate that we do not think that the boat has sailed for the remaining three. With the commitment to the four schemes, I think that Ministers could perhaps give some clarification about the intention. Our understanding is that within the scope of the four schemes, the intention is to have funding for at least one available for pre-combustion.

Q 52

Michael Weir: What sort of time scale would you be looking at for that? Given that many of our stations run on natural gas, it seems crazy that we are not thinking of looking at that, at least in the short term.

Dr. Keith MacLean: The advantage of a pre-combustion approach is that it is more flexible and could be applied to different approaches. I reiterate that we are hopeful that the funding will encompass pre-combustion. We are working on that basis and perhaps Ministers could clarify the point.

Hugh Bayley: I wonder whether the Minister will clarify.

Joan Ruddock: I am very happy to clarify that point. There is scope for both pre and post-combustion. That is covered by the levy arrangements proposed in the Bill.

Tobias Ellwood: But Joan, that did not apply to the trials and that is the problem.

Hugh Bayley: One at a time, please.

Joan Ruddock: There is a competition that is still continuing for one demonstration project. That is for post-combustion. We have agreed that there will be a total of four and so there remain three that could conceivably be pre or post-combustion. The limit is on the first competition project, not the subsequent three projects.

Hugh Bayley: I say gently but firmly to colleagues that we have witnesses here and this is not the time to debate the issues that we will cover in our clause-by-clause deliberations. Mike, did you have a further question?

Michael Weir: No, I am fine.

Q 53

Alan Whitehead: You are not all participating in the competition, but you are all likely to pay the levy. Do you think that the best way of securing a fair allocation of the levy is to go for simplicity, for carbon intensity or for other methods that might reflect other views of what a fair levy might be?

David Love: The response that you got to this issue from Rupert Steele during the first part of the sitting was very good. He basically said that there are established mechanisms for recovering the costs of these kinds of schemes through the energy companies. Certainly, from my perspective, simplicity is a very good objective in these things. It is established and very simple and we would not have the kinds of complications of trying to establish the carbon content or carbon intensity of various inputs to the generation mix. That would have to be audited and it would just increase the cost, the complexity and not even give you a better result. I think that the way it is currently envisaged, to stick with the tried and trusted method, is probably appropriate.

Philip Davies: I would offer a slightly different view. I think that the arguments about simplicity made by competitors in the previous session have some force, but, at the same time, the background to this is that we are talking about significant additions to consumer bills. While an argument can be made that there are precedents in relation to how this may best be done from other, already existing levies, one could make a case that it would be useful to look at carbon intensity. For example, if British Gas customers are not benefiting from CCS projects, should they be contributing to their funding?
We have measures of carbon intensity, such as the fuel mix disclosure statistics that are published and used by the industry in its marketing, so there are ways and means through which this could be looked at. I take the point that there is possibly some perplexity involved and that precedents from other levies suggest that that is not a route to explore, but I would not be as clear as others have been about it not necessarily being worth looking into.

David Mannering: May I give a different perspective on that? If the levy is put on the carbon intensity of this different generation, that effectivelypotentiallygives an additional benefit to renewable energy. Renewable energy already receives benefits through the renewables obligation, and if suppliers of renewable energy do not have to pay the cost of the carbon capture and storage levy, that is, in a sense, an additional support mechanism for renewables. It seems to me preferable to keep the support mechanisms pretty clear-cut. One does that by charging the support levy across all customers of all suppliers, so I would agree with the simplicity point.
There is a further issue that bears thinking about, namely the balance with which obligations are placed on electricity compared to gas. We know that various commentators are understandably interested in the balance of prices between electricity and gas, because some customers are off the gas grid system. Indeed, the Bill itself contains a measure that deals with that area. We also know that in the long term to 2050, the future is to generate low-carbon electricity and use it for transport and heat as well as for the existing things that electricity is used for, so, in the long run, we do not want to deter customers from moving to electricitywe do not want the price signals to encourage them to stay with gas or other fuels. What we have at the moment is a situation in which many of the levies are focused more on electricity than on gas. For example, electricity consumers

Q 54

Alan Whitehead: But with respect, there will be a renewable heat incentive.

David Mannering: That is right, but at the moment electricity customers implicitly pay for carbon allowances through the EU ETS, because the electricity system has to buy EU ETS allowances, whereas customers who burn gas in their boilers at home do not have to pay for EU ETS allowances. Equally, the new CEScommunity energy supportmechanism is payable by gas and electricity suppliers. It is also payable by electricity generators, but not gas producers. At the moment, there is already a tilting of the cost of obligations on to customers of electricity compared with customers of gas. It is questionable whether that is in the long-term interests of where the country wants to go with its low-carbon transition.

Q 55

Alan Whitehead: On the question of the allocation of the levy, a lot of this, as Dr. MacLean has mentioned, is still in the lap of secondary legislation, or will be. Do you have a view about the extent to which that secondary legislation might incentivise allocations through knowledge sharing? Should the knowledge sharing simply be a public good, as a result of the allocation, or should those who are the first movers perhaps receive some benefit, as a result of that allocation?

David Mannering: Is the question, If demonstration projects are funded by a levy and an obligation, should the knowledge be shared across their rivals?
Dr. Whiteheadindicated assent.

David Mannering: It seems to me that the answer must be yes.

Q 56

John Robertson: This question was asked of the previous group of witnesses. The Bill restricts funding to plants powered by coal, or by coal and biomass. Should it be extended to cover natural gas and/or other fuels? I get the feeling that the answer will be yes, so could you explain why?

Dr. Keith MacLean: Coal is the more pressing issue at the moment, because of the higher carbon intensity. It is understandable that the focus of the initial funding is on that. Through the inclusion of both pre and post-combustion projects, there can be useful learning experience for gas projects, particularly around the transportation and storage of CO2, which will also apply to gas. Clearly, three or four years ago, with a project to go, we would have argued strongly for gas. Since that opportunity has gone, at the moment getting the focus on coal is important, as is making sure that we get the appropriate learning experience about transportation and storage, which can be subsequently applied to gas.

David Mannering: We would agree with that. Moreover, in the future one would anticipate an electricity system where gas power stations are largely operating in flexibility mode to offset the intermittency of some renewables. Therefore, the benefits of fitting this very expensive technology to a gas plant that does not run very often would need to be considered before one made a decision to go ahead with that.

Q 57

John Robertson: Philip, you seem to be outnumbered. What do you say?

Philip Davies: Yes, I would have a different view on this, as you guessed. As has been widely said already, this is about the demonstration phase of the project. I think it is hard to see clear reasons why you would exclude particular approaches or fuels, or ways of going about projects at this stage. Why not let the technologies and the operators, through their own efforts, work out which is the most effective by letting them decide what they include, rather than deciding at the front what is excluded? There is a difference between this area and some of the areas that we are currently more focused on, such as nuclear and renewables, where we regard the technologies as more proven.
Although we support this overall initiative because we think it is part of the portfolio of requirements that the country will have in future, as a general rule it is dangerous to be too prescriptive about what is included in and excluded from the scheme.

Q 58

Phil Willis: I am pleased to find that you agree with social goodthat was quite an exciting answer you gave earlierbut can I return to pre-combustion?
There seems to be a huge advantage that none of you have mentioned, which the previous panel did not mention either. If you go to post-combustion, you end up with CO2, which is a cost in terms of being able to transport and store it. If you go for pre-combustion, you are creating hydrogen, which could be used and sold extensively for other purposes, particularly involving the transport revolution, including for hydrogen fuel cells and what have you. Have any of your companies factored in the effects of being able to develop a hydrogen economy as part and parcel of future pre-combustion use of carbon capture?

Dr. Keith MacLean: There are certainly elements of the use of hydrogen that have benefits, for instance, as you rightly point out, the storage or transport of that for alternative use. But at the moment, as was made clear in the first session, one of the big issues around carbon capture and storage is not whether the individual chemical or physical processes work, but getting them all to work together, and getting that to happen in an economic way. At the moment, if you extend that to include all the difficult issues to do with hydrogen storage and transport, it is adding a complexity that is likely to make it more difficult, at the moment, to make progress than to be an added incentive to move it through.

Q 59

Phil Willis: I am worried that the Bill is leading us down a track of post-combustion. You have probably gathered that my particular interest is to try to move it in a different direction. The technology will be redundant by the time that we have completed the demonstrators, because the science is moving on at such a pace that if we are going to attract the Chinese, particularly, into this market, pre-combustion will be the only way for us to have a much more saleable technology in terms of using fossil fuels for other chemical processes. Do you agree with that?

Dr. Keith MacLean: We agree with the importance of pre-combustion. We are interested in that and looking at options for projects of that nature. As we have covered previously in this session, we believe the Bill will potentially support those projects. So I do not think there is an issue there. At a future date we can add the flexibility for the use of hydrogen for other purposes as an added benefit, but at the moment I think it would be an added complication.

Hugh Bayley: We really have to move on. We have only 15 minutes or so to ask questions about social tariffs, Ofgem and regulation before I turn to the Front Benchers.

Q 60

Simon Hughes: I will not exactly replicate the questions to colleagues, but rather I will focus on some of the specifics.
First, David, your company made a submission to our Committee about social tariffs that has some pretty robust comments in it. It says that you support a social price system in principle, but it is critical of the proposals. You also say that there needs to be a whole look at the winter fuel payments scheme and so on. Describe for the Committee, if you will, what you would now wish us to do in the legislation as we change it. I accept the premise, but let us change from a voluntary to a compulsory system. Describe what you think the system should be.

David Mannering: First of all, we have for some while endorsed a compulsory social obligation. We believe that the amounts of money involved now are sufficiently large for it to be appropriate to be done on a statutory basis. Secondly, it has come out of discussions with contacts at DECC that we are potentially at a watershed here in the regulation of the energy industry. An obligation of this nature may persist for some while and the level of the financial commitment is likely to be pretty substantial for some years and, therefore, it is extremely important to get it right now. Something that is in statute is much harder to change than something that is part of, say, a licence condition imposed by the regulator.
I guess that one of the main concerns is the definition of a benefit. My understanding of the Bill is that suppliers must pay customers a benefit. That has, potentially, a number of drawbacks. If your obligation is defined solely in terms of how much you give to customers, that might, first of all, fail to incentivise the provision of benefits entitlement advice because in doing that you are not yourself transferring a benefit to customers. Equally, if benefits exclude the administrative costs involved in providing the advantage to customers, it would discourage certain activities, such as providing benefit entitlement advice, because there you are not transferring any money. You are incurring an administrative cost in giving the advice but not transferring anything to customers, so that activity might be excluded from the scheme. We think that that would be unhelpful.
Another drawback of excluding the administrative costs is that it might distort competition. If one company has a relatively high share of customers entitled to a benefit prescribed by the Secretary of State, which, in turn, has more significant associated administrative costs, that company has the potential to be disadvantaged because those administrative costs are not part of any equalisation scheme

Q 61

Simon Hughes: Can you just hold it there? You are beginning to open up the argument. Can I short-circuit that by asking all four colleagues, given that we have a little time before we come on to this part of the Bill, if they would each let us have a note about how they see a compulsory scheme best working? The beginning of next week would be helpful. Can I ask David to finish by asking if he supports the principle of clause 10, which would allow the Secretary of State to create a scheme to redistribute costs between suppliers? Do you accept that as a principle?

David Mannering: Yes, I think that it is an essential part of the schemethere is a caveatunless the amount of the obligation is sufficiently large on each supplier that one does not need to have any reconciliationthat the entire obligation can be undertaken within that requirement.

Q 62

Simon Hughes: May I ask one more question? I ask all of you this, starting with David Love. The question we asked to colleagues before: in the last year for which you have the records, how much of your current spend is on social tariffs and what do you each project your spend to be under the first year of a regulated compulsory regime?

David Love: I have not got the percentages; I have the absolute numbers and I will certainly get back to you in the same way that you asked the other participants to earlier. The obligation last year was £10.6 million and we overspent by 10 per cent.

Simon Hughes: So you spent £10.6 million?

David Love: No, that was the obligation. We spent £11.6 million.

Simon Hughes: Philip?

Philip Davies: We spent about £80 million. The precise number is around £77 million in 2008-09.

Q 63

Simon Hughes: And was that what you had targeted and expected?

Philip Davies: That was well above our required spending.

Simon Hughes: By a margin of about what10 per cent. or 20 per cent.?

Philip Davies: I do not have the precise percentage. As a proportion of industry spend, we have spent something like 60 per cent. of the industry spend is actually British Gas spend on social tariffs.

Simon Hughes: David?

David Mannering: Our commitment is of the order of £20 million a year. Last year we overspent by about 9 per cent. and we expect to overspend again this year. My back of the envelope calculation suggests that that is about half a percent of turnover.

Simon Hughes: Keith?

Dr. Keith MacLean: We spent around £21 million, which was also an overspend. Looking into the simple calculation, £300 million was a fifth of the market. Our spend would be going up to about £60 million.

Q 64

Simon Hughes: And you could let us have your best-guess projection, for the first year of a compulsory system. Obviously, there are lots of variables, but you must have a view on whether it would cost you double the amount, or treble the amount.

David Mannering: Can I just say that one of the key uncertainties

Hugh Bayley: I think, actually, in view of the time, we probably want to move on to our final questions about regulation. I hope that the four companies will be able to respond positively to the questions that Simon has asked, if possible by the end of this week. That may limit the amount of thought and research you can put in, but it will mean that the Committee will have it in time. Thank you for that. Mike.

Q 65

Michael Weir: I want to start with the same question we asked the other panel. What do you think the impact the provisions in clauses 16 and 17for Ofgem to take account of carbon emissions and security of supplywill have on the way they work, if any?

David Mannering: Can I just open that one up? Not very much, because I think that they have taken on board the new imperative, since maybe 2007, already. The existing wording allowed them to factor in a greater emphasis on social and environmental issues, but it is quite clear that they have responded to Department of Energy and Climate Change draft guidance that has been issued, I think in 2008, and again more recently. That creates more of an imperative for them to take an interest in social and environmental issues. So I think that they are already there.

Dr. Keith MacLean: I would not be as confident in making that statement. I think that the evidence of the Government having to intervene in the way that they have on transmission access is evidence enough that there seems to be a difference in the emphasis, if not the direction of travel, in that particular area. I think that it is true to say that transmission and access to networks is probably the one area where the biggest issue has arisen. We feel that the further clarification that this years Energy Bill provides to Ofgemfollowing the clarification in last years Energy Billis moving in the right direction. Ultimately, we would be concerned about any wholesale change to the remit, with its potential for unintended consequences. So, this is moving us in the right direction. In that way I would agree with David, but as well as the letter of the law that is being set down here, we need to think about the spirit of the law. It is very similar to the planning system, where you have one planning Act. One local authority can take a very positive view within that Act and another one can take a very negative view. We have to make sure that everybody in Ofgem is working in the right spirit and has aligned incentives to deliver the common goals that the Government are setting out, that we, as an industry, are trying to deliver, and that hopefully the regulator is also trying to facilitate. This is moving in the right direction, but we do not think, particularly on transmission access, that Ofgem is there yet, and on transmission chargingabsolutely not.

Philip Davies: I think it will make some difference. As David Mannering says, Ofgem has in some ways already moved on that and this, in a sense, will just cement that. We share the direction of the proposed change. We think it is appropriate, given the changing demands of energy policy.
One concern we have is that as policy making becomes more complex, with the need to balance the increasing demands of security of supply, climate change, low prices and customer service, the guidance that Ofgem operates will be very important because there will be more of a balancing act between the different objectives. If we want all this investment to come forward, from an industry perspective part of the point of an agency that operates at arms length from Government is that it creates a decision-making environment that provides at least an element of predictability and stability for companies. When they are looking at projects or big decisions that have an important Ofgem component, they kind of know the rules of the game. Although the world is complex and Ofgems duties need to reflect that, we nevertheless need to operationalise the change of duties so that the sector understands them and can work with them.

David Love: I would echo many of those comments. We have long called for a better alignment of Ofgems duties with Government policy, particularly in these key areas. We have a huge challenge of decarbonising the energy sector, and Ofgem has a key role in that. One of Philips points was that if these powers go through unchanged, it will be vital for Ofgem to give the companies some guidance on whether it is going to change its views and, if so, how it will change the balancing act between security of supply and protecting customers and, in particular, the balance between competition and intervention, which is in the Bill.

Q 66

Michael Weir: Picking up on some of these issues, the other part is the market power licence condition. ScottishPower and Scottish and Southern Energy have both had concerns about aspects of the balancing charges. Do you agree with ScottishPower that it would be contrary to consumers interests because it would put a significant question mark on investment?

Dr. Keith MacLean: We would certainly agree that as drafted and without further clarification, the market power licence condition could be unsettling. We covered in the first session the concern that investors would have about the natural spikes in price that are needed to signal investment or to give an economic case to back- up generation to come forward. If there was going to be intervention or there were concerns that high prices might lead to the use of these powers, it would affect investor confidence. We feel that in the explanatory notes, the Government have made it clear what they intend the powers to be used for. However, as it is put forward in the Bill, it is quite wide-ranging and has the potential to impact on investor confidence.

David Mannering: If I could pick up on that, a quick review of the history of the market abuse licence condition illustrates why companies are nervous about it. It was originally rejected by the Competition Commission in 2001. Ofgem sought to reintroduce it as part of the new electricity trading arrangements process and the Department for Trade and Industry at that time rejected the attempt. In 2009, following the Competition Act inquiry, Ofgem sought again to introduce the licence condition. It presumably got a message from most of the companies that they were not in favour of it.
At that point, Ofgem had a number of choices: it could have gone back to the Competition Commission to see if it had changed its view or it could have handed a Competition Act case to the Office of Fair Trading to see whether it could pursue it. It did neither of those things. It went to the Government and asked for a market abuse licence condition. The evidence is that the normal regulatory processes that are meant to operate in this area, where a licence condition is not accepted by the industry but goes to the Competition Commissionthere is repeated evidence that Ofgem has not found favour in following that approach. That therefore makes us nervous. The risks associated with this clause on investment could be significantly attenuated if it was clearly specified that it was addressed only at derogated transmission boundaries.

Hugh Bayley: I am trespassing on Charles Hendrys time, but you wanted to ask a particular question, John, did you not?

Q 67

John Robertson: I want to ask about the market power licence condition itself, David Mannering. There is a really good case for having it. We agree that there are abuses; we have noticed the system is being abused by companies. The problem is that the Competition Commission and all the other bits and pieces that we have put in place do not work. Why should we not therefore have something like the MPLC in place? After all, our job is to look after the customer and not only the companies. It would seem that the companies want to look after themselves; customer complaints and problems do not seem to be addressed properly.

David Mannering: I have to disagree with you.

John Robertson: That does not surprise me.

David Mannering: We dont think that there are abuses.

Dr. Keith MacLean: I certainly wouldnt accept that position, but we are not saying that there shouldnt be an MPLC put forward. All we are saying is that it should be quite clear what it is being put in place to address.
At the moment, it is being put in place to address the enhanced constraints. They are a temporary aberration that we have at the moment because of the mismatch in investment in transmission and investment in generation so lets do something specific to deal with this temporary problem, rather than having something with wide-ranging powers that has the potential to impact negatively on investor confidence at a time when all of our companies are having to look to third-party finance now. We have so much to invest in, and our normal balance sheets are not capable of funding all of that, so we are far more susceptible to the issues that investors have with these sorts of interventions. So to be specific about it, we as a company would not have a particular problem with it.

David Love: We also support a tightly focused temporary granting of these powers to Ofgem to minimise what will be enhanced costs for bringing on generation, particularly in Scotlandrenewable generation in Scotlandbefore the transmission system is has been reinforced, as Nick Winser said this morning. That will increase costs; there is no doubt about that. What this is trying to address is any abuse of market power that results from that. So there still will be an increase in costs.

Hugh Bayley: Thank you. I call Charles Hendry.

Q 68

Charles Hendry: We have heard from Dr. MacLean and Mr. Davies about the pre-combustion projects that SSE and Centrica were developing, which were dropped because of the way in which the rules of the competition were set. Will you give us some guidance? Are you now looking to revive those projects because pre-combustion has been brought back, or are they lost for the foreseeable future as a result of the initial terms?

Dr. Keith MacLean: Our project with BP was lost because the timing of it meant that BP had to close the fields that were going to be used as part of the storage for it. That doesnt mean that we have stopped looking at other opportunities, but that particular project in that area was lost.

Philip Davies: We were looking at a particular project, I believe a couple of years ago. We maintain discussions with all our commercial counterparties, so nothing is ever definitively dead, but right now there are no live discussions, I would say.

Q 69

Charles Hendry: So it is therefore true to say that as a result of the way that the competition was structured, active schemes were lost.
You also spoke about investment in new plant and about the concern that there would be a requirement to retrofit that part of the plant that did not have CCS from the outset but perhaps not the financial support, which would make that difficult to justify. How much would that be changed if there was a floor price for carbonfor example, in conjunction with the EU emissions trading schemethat would therefore give you a predictable price for carbon, looking forward to 2020 and beyond?

David Love: The same factors that apply to CCS, once it has been demonstrated, as would apply to, for example, investment in new nuclear power stations. We think that the EU ETS is not giving the correct costs for carbon and it certainly is not giving any long-term signal. Any investment in these plants is going to be here for 50 years. If you are doing the investment appraisal, you need at least to cut off the bottom of the worst scenarios for market price and carbon floor support. Cutting those off would make your investment appraisal both for CCS and new nuclear much more acceptable.

Q 70

Charles Hendry: Would you all support a permissive power for the Secretary of State to introduce a floor price for carbon, and using the Bill as a way of doing that?

David Love: Certainly we would.

Dr. Keith MacLean: The concern that the industry has always had in this particular area is that we do not unilaterally want to do something here in the UK, even if it were only in the power sector, that makes progress at a European or international level less likely. It is difficult at the moment to work out whether the failings at Copenhagen make it more or less likely that we will need to intervene, but I think that, in the past, we have said that as a last resort there needs to be something done within the UK power sector at some point in time. I do not think we are there yet. Perhaps there would be disagreement across the panel as to the timing of when this would need to be done. Our particular view is that we are not there yet, so there would not be an immediate rush to put something into this Bill.

Philip Davies: I think that an open clause of the type you mentioned would be extremely helpful. There is clearly an issue that needs to be addressed and there is an issue about international co-ordination but, in many areas, the UK is choosing to go faster and further, and it is providing leadership in this area. That might well need to be the case again.

David Mannering: Before we make a decision to implement a carbon floor, we should perhaps look at the alternative ways of incentivising low-carbon generation. So, an alternative approach might be to provide first mover incentives, as we are doing with the CCS demonstration plant, perhaps to the first new nuclear plant put on the system. That would be an alternative way of kick-starting low-carbon generation technologies.

Q 71

Simon Hughes: Dr. MacLean, do you have a planning projection as to where in the world the first fully compliant CCS plant will be up and running? What is the earliest date you are expecting to see in this country or elsewhere a fully operating CCS plant?

Dr. Keith MacLean: I really would be speculating in an area in which I am not an expert, so it really depends very much on the scale. The biggest challenge is going to be not the technical viability, but the commercial viability. There are so many factors at the moment around that; it really is the unanswerable part of the question. Technically, I am sure it will be possible. Certainly, on a smaller scaleseveral megawattswe are hopeful of having that within a relatively short period of time at our plant in Ferrybridge, but that is very different from a 1 GW plant operating with full commercial viability. There is a question mark over that. To be honest, we do not know whether we will ever get there.

Q 72

Simon Hughes: I have a request for information, Mr. Bayley. Rather than put you on the spot now, could you all please let us have by the end of the week the number of tariffs currently operated by each of your companies? Will you let us know whether you have any plans to reduce the number of different tariffs? If so, by what date later this year will they be reduced?

Hugh Bayley: That is something to add to the list of supplementary evidence. Do any other colleagues wish to contribute?

Q 73

Phil Willis: I am keen to ask the panel if they feel there is any serious omission from the Bill which, if they were drafting it, they would want to include.

David Love: With a blank sheet of paper?

Phil Willis: With a blank sheet of paper.

David Love: I would certainly advocate the enabling power for the carbon floor price. The bit that is missing, perhaps, from the Ofgem duties is some duty to promote investment in the industry that is required.

Philip Davies: I would echo the comments on the enabling clause for carbon floor pricing. Obviously, this is a huge question that is probably not going to be solved immediately, but needs to be resolved soon, so that would be a way forward.

David Mannering: I do not think that we would want to add anything. There might be a case for looking at integrating the fuel poverty aspects of the CERTthe carbon emissions reduction targetwith the proposed social measures so that they operate more coherently as a package.

Q 74

Brian Binley: Nobody has mentioned the possible relationship between CCS and North sea oil. Is that because you do not think there is any real value there, or because you have no real understanding of any possible connectionspecifically, the ability to possibly get an extra 15 per cent. out of the North sea?

Dr. Keith MacLean: Once again, it is really sad that our project with BP died the way it did, because enhanced oil recovery was very much part of it. It makes sense to look at that. There are other areas where I am still hopeful that we will get some synergy benefits in respect of the North sea oil developmentsaround offshore wind and marine developments. There is a lot more that we can be doing in that regard and a lot more we can do to attract investors to the UK to set up the supply chains to support those developments. I hope that we will be faster and more successful in that area this time round.

David Love: Having worked in the oil industry, I agree that that is a benefit that should be factored in.

Hugh Bayley: If Committee members have no further questions for the witnesses, that brings us to the end of this mornings proceedings.

Ordered, That further consideration be now adjourned. (Steve McCabe.)

Adjourned till this day at Four oclock.